Jeremy Warner's Outlook: Macquarie is the last man standing in battle for LSE, but is it prepared to pay the price?

BSkyB: could James soon be moving on?; Sarin heads off critics at Vodafone

Wednesday 15 February 2006 00:31 BST

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The phoney war in the battle for the London Stock Exchange is about to come to an end. To date, it's scarcely looked like a fight at all. Macquarie, the Australian investment bank, is the only one of the LSE's many potential suitors to have made a proper bid, yet so far it cannot be said to have made a credible one. Its offer is so far below the market value of LSE shares, that the bid might as well not be on the table at all.

"Have you looked at a Bloomberg screen recently?", shareholders have asked Macquarie's ever courteous Jim Craig as he's toured the institutions, trying to convince them of the merits of his valuation.

But just as Macquarie has yet to put forward a credible bid, the LSE has yet to lay down anything remotely close to a credible defence. To date it hasn't had to.

It's a curiosity of the British Takeover Code that the final defence must be mounted before the deadline for the final bid. The LSE must therefore fire off all the cannon it's going to by the end of the week, with Macquarie given another seven days thereafter to decide how to respond.

Given the low-ball nature of the present bid, the LSE's chief executive, Clara Furse, must be tempted to fire no cannon at all. She'd be unwise to gamble on such a contemptuous response. Having come this far, we can only assume that the Australians are serious. To remain in the game, which must be their intention, they'll have to come back with something north of £7 a share.

A repayment of capital far superior to the £250m already promised must therefore be a key element of any successful defence. Other than that, the LSE will have to fall back on reiterating the attractions of London as a financial centre. London's success in attracting international capital makes its stock exchange a doubly valuable asset, not lightly to be consolidated into some bureaucratically monstrous continental behemoth or surrendered to private equity.

While the Americans struggle under the yoke of Sarbanes Oxley and an increasingly oppressive plethora of securities regulation, London has become the place of choice for international share listings. It is infinitely cheaper to list in London than almost any other capital centre of size, witness London's growing success in attracting share listings from Russia. China and India won't be far behind. Where once international capital headed to New York, it now heads for London.

This is one reason why John Thain, the chief executive of the New York Stock Exchange, would so dearly love to buy the LSE himself. His own market is becoming so restricted that to escape and continue to grow, he's going to have to expand into London. He virtually admitted as much in recent remarks which looked carefully coded to suggest to LSE shareholders that if they hold on in there a few more years he'll be ready to bid. In any case, since he made his remarks, LSE shares have added the best part of a pound. For Macquarie, the price of success just keeps rising.

Yet how realistic is Mr Thain's promise of eventually, like the 7th Cavalry, coming riding over the hill? As things stand, I would suggest, there's more chance of being rescued by the Sioux. For any bid by either the NYSE or Nasdaq, the issue would always be that of whose regulator, the Securities & Exchange Commission in the case of the Americans, and the Financial Services Authority in the case of the LSE, would have jurisdiction.

To have Sarbanes Oxley and the rest imposed on London would poleaxe its present advantages as the listing location of choice. Yet there would be little purpose in a holding company structure that would keep the two separate for regulatory purposes. All the supposed synergies of the deal would disappear.

In my book, that leaves Mr Thainout of the game. With the continental exchanges apparently out of the picture too, Macquarie is the last man standing. But is it prepared to pay the LSE's price? We'll know the answer soon enough

BSkyB: could James soon be moving on?

For years, one of the main objects of fascination when writing about Rupert Murdoch's News Corp was which of his offspring would end up the anointed successor. Would it be Lachlan, Elisabeth, or James? Today there's only one serious contender left in the ring, the other two, for one reason or another, having thrown in the towel: if any of them are to inherit the earth, it will be James.

Having served his time in the outposts of empire, first with Star TV in the Far East, and now with BSkyB in London, the question arises of when he'll be moved back to New York to complete his apprenticeship.

Mr Murdoch senior is now in his mid 70s, and although both in mind and body, he appears as tireless as ever, he'll know that to guarantee the future of the dynasty, his son has to be bedded in at head office soon. From the rival media tycoon John Malone to News Corp's chief operating officer, Peter Chernin, there's no shortage of rival pretenders to the crown; James needs to be at court to head off any attempted putsch as the emperor's faculties fade.

But when? After a faltering start, Murdoch junior is proving himself a remarkably adept chief executive of BSkyB. True enough, he's got some excellent lieutenants, and in the form of his father as chairman, he could hardly do better on parental guidance. Even so, it takes skill to deliver on Sky's ambitious growth targets while at the same time not completely trouncing the profits. What's more, it's hard to think of an established broadcaster that has been better positioned for the digital revolution than Sky.

Broadband presents a myriad of exciting new horizons and opportunities, yet few broadcasters have articulated a convincing strategy for making any money out of them. At this stage, it looks only as if the erosion of profits in old media is going to occur at a much faster pace than the growth of revenue and profit in new media.

What does seem clear, however, is that those with access to decent billing and customer relationship management systems are going to be much better positioned that anybody else. Knowing your customer, knowing what they'll pay, when they'll pay it and how most effectively to deliver content in a chargeable format, will be key to survival in the uncharted waters we are all sailing into.

This might sound like a statement of the obvious, but pursuing the obvious is becoming an ever more complex business. Among the major players, only Sky and possibly British Telecom, have both the existing systems and are investing heavily enough in new ones to guarantee success.

I'm not sure these advantages have yet been properly priced in by the stock market, where both Sky and BT shares have gone nowhere for some years now. If Microsoft were to make a serious push into the consumer market with its media centre, that would considerably alter the dynamic. Yet for now, Sky is sitting as pretty as anyone.

Expect James to be summoned back to court towards the end of the year, at which point there will be the usual charade about the selection of a successor. In the end, it will be Rupert that decides - again.

Sarin heads off critics at Vodafone

The whole world, seemingly, is in Barcelona for the annual mobile phone jamboree. Arun Sarin, chief executive of Vodafone, used the occasion to reiterate once again for anyone who hasn't already got the message that he's not going to give in to pressure from some shareholders to sell his stake in Verizon Wireless, the company's core US asset.

Mr Sarin has had to contend in recent months with a concerted whispering campaign, both internal and external, that he's not the man for the job. With the appointment yesterday of Warren Finegold from UBS as a key operations executive, he's now slotted into place the final ingredient of his own team, and we can expect a growing confidence in his modus operandi from here on in. Now all he needs is for the share price to show some signs of life.